Work in Illinois, Live in Wisconsin: Tax Reciprocity

The exemption form

How do I file IL-W-5-NR to claim the reciprocity exemption?

IL-W-5-NR is the Illinois Certificate of Nonresidence. It tells your Illinois employer that you are a resident of a reciprocal state and should be exempt from Illinois income tax withholding. The steps are straightforward:

1. Get the form from the Illinois Department of Revenue website or your employer's HR office.
2. Enter your information — name, SSN, Wisconsin home address — and check the box for Wisconsin.
3. Submit to your employer. Payroll switches your withholding from Illinois to Wisconsin.
4. Confirm the change on your next pay stub. You should see WI withholding and zero IL withholding.

File the form as early as possible — ideally on your first day. If you delay, Illinois tax accumulates on each paycheck and you will need to file an Illinois nonresident return to reclaim it.

What income does the IL-WI reciprocity agreement cover?

The agreement applies to compensation earned as an employee: wages, salaries, tips and commissions paid through a W-2. It does not extend to:

• Self-employment or freelance income earned in Illinois
• Rental income from Illinois property
• Gambling winnings from Illinois sources
• Partnership or S-corp distributions from Illinois entities

If you have non-wage Illinois income, you may need to file an Illinois nonresident return (IL-1040) for that portion, even with reciprocity covering your wages.

How do Wisconsin and Illinois tax rates compare for cross-border commuters?

Illinois imposes a flat-rate income tax on all taxable income. Wisconsin uses graduated brackets with rates that increase at higher income levels. Under reciprocity, you pay Wisconsin's graduated rates on your Illinois wages rather than Illinois's flat rate.

At lower incomes the two can be similar. At moderate to high incomes, Wisconsin's marginal rates tend to exceed Illinois's flat rate, which means you may pay more in state tax as a Wisconsin resident than an Illinois resident earning the same salary. The reciprocity agreement does not let you choose — you pay your home state. The benefit is administrative: one return, one withholding, no dual-filing headache.

What if my employer withheld Illinois tax before I filed IL-W-5-NR?

This happens frequently, especially when payroll systems default to work-state withholding at the start of employment. Here is the step-by-step fix:

1. File IL-W-5-NR with your employer immediately. This stops further Illinois withholding going forward.
2. Ask payroll if they can correct mid-year. Some employers can reverse the IL withholding and apply it to WI through a payroll adjustment. Many cannot, especially if the IL payment has already been remitted to the state.
3. If mid-year correction is not possible, you will need to file an Illinois nonresident return (IL-1040) at year-end showing zero Illinois-taxable wages under reciprocity. Claim a full refund of the IL withholding. Attach your W-2 showing the IL wages and withholding.
4. Check your W-2 at year-end. If the employer corrects the withholding mid-year, they may issue a W-2c (corrected W-2). If not, your W-2 may show IL withholding that you reclaim via the IL-1040 refund process.
5. Make up the WI shortfall. During the months Illinois was withholding, Wisconsin tax was not collected. You likely owe Wisconsin a balance. Making an estimated WI payment before the filing deadline can help you avoid an underpayment penalty.

What if I moved between Illinois and Wisconsin mid-year?

If you were an Illinois resident for part of the year and then moved to Wisconsin (or vice versa), you are a part-year resident in both states. The reciprocity agreement applies only for the portion of the year you qualify as a nonresident of Illinois.

• During your IL residency period: You file IL-1040 as a part-year resident and owe IL tax on income earned while you lived in Illinois.
• After moving to WI: File IL-W-5-NR with your employer so withholding switches to Wisconsin. File Wisconsin Form 1 as a part-year resident reporting only the income from your WI residency period.

Each state prorates your income based on dates of residency. Keep records of your exact move date, as both state returns will ask for it. For a general estimator, see the part-year resident tax calculator.

How does remote or hybrid work affect IL-WI reciprocity?

If you live in Wisconsin and work for an Illinois employer but spend some days working from your Wisconsin home, reciprocity still covers your wages — you owe tax only to Wisconsin regardless of where you physically sit on any given day. The agreement exempts all your employee compensation from Illinois tax, whether earned on-site in Illinois or remotely from Wisconsin.

However, if you are a Wisconsin resident working remotely for a Wisconsin employer but occasionally travel to Illinois for meetings or client visits, the situation reverses. Those Illinois workdays may create Illinois-source income and potentially require an IL nonresident filing if reciprocity does not apply (reciprocity covers only employees of an Illinois employer who are residents of a reciprocal state). In practice, brief occasional travel usually does not trigger a filing obligation, but extended or regular presence could. When in doubt, consult the Illinois DOR.

Are there any local or county taxes in IL or WI that reciprocity does not cover?

Neither Illinois nor Wisconsin has a broadly applied local income tax in the way Ohio or Kentucky does. Illinois municipalities do not levy a local income tax on wages. Wisconsin does not have a county or city income tax either. This means the IL-WI reciprocity arrangement is cleaner than many other cross-border pairings — there is no hidden local tax layer waiting to surprise commuters. The only tax you owe is Wisconsin state income tax on your wages.

Contrast this with the Michigan-Ohio crossing, where Ohio's municipal income tax creates a "local tax trap" that state reciprocity does not address.

Does reciprocity affect the commuter corridor between Chicago suburbs and southern Wisconsin?

Yes — and this is one of the busiest reciprocity corridors in the Midwest. Thousands of workers commute from Kenosha, Racine and Walworth counties in Wisconsin to jobs in Lake County, McHenry County and the northern Chicago suburbs. The reciprocity agreement keeps their tax filing clean: one state (Wisconsin), one return, Wisconsin withholding on every paycheck.

Without the agreement, each of these commuters would file both an Illinois nonresident return and a Wisconsin resident return, then calculate a credit to avoid double taxation. The administrative savings across the corridor are substantial — which is one reason both states have maintained reciprocity for decades.

Note that Illinois also has reciprocity with Iowa, Kentucky and Michigan. Wisconsin has reciprocity with Illinois, Indiana, Kentucky and Michigan. For the full list, see all state reciprocity agreements.